09/17/12

New Retirement Math

In a recent article by Offain Gunasekara, of Fox Business News, he highlighted the need to think about new math.  Not the new math which we encountered in elementary school 40 years ago, but the new retirement math.

In the past, most retirement calculators used a growth rate of 7ish percent.  Today, according to Marcus Allan Ingram, chair and associate professor of finance at the University of Tampa, it is necessary to use a more modest growth rate of 5%.  This means that you may need to “do your math all over again.”  Further, since the Fed just announced a concerted effort to keep rates low until 2015, the amount you need for a secure retirement will continue to be a difficult target to not just hit, but to determine in the first place.

In this article, Professor Ingram suggests that investors should “test-drive your retirement assumptions to give you a realistic picture of how much you’ll need to retire — and the steps you need to take to make today’s vision a reality tomorrow.”  In addition he suggests using a “retirement planning coach.”

Professor Ingram explains that a retirement planning coach is not just a financial planner who sells you products, but is an advisor who is an independent and unaffiliated fee-based retirement planner.

What is the ideal amount of savings needed to retire?

That is literally the million dollar question!  The economics of retirement income planning have changed.  This is due to market volatility, inflation, longevity, drop in housing values and ever-increasing health care costs have dramatically altered the planning rules from not only recent generations, but for everyone moving forward as well.  The bottom line is that we are seeing the challenges in retirement planning are not the same from one generation to the next.

By working with an independent fee-based advisor, they should be able to work with you to put together a portfolio which blends both guaranteed/dependable rates of return as well as less volatile investments to help ensure that your portfolio will both generate current income as well as future growth.  This is the only way to ensure that you will not run out of money before you run out of life.

If you need more help with this topic, please feel free to call or email me.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®